When are you going to die?

As questions go, it’s pretty important, especially when it comes to your retirement planning.

Ministers have announced that pensioners will soon be given an estimate of when they might die, in order to help them with planning retirement income.

Pensions minister Steve Webb has said that experts will consider smoking, eating habits and socio-economic background in order to determine approximate life expectancy.

This guidance could be published from April 2015, in order to help people make more informed financial decisions.

In theory, it’s a sensible idea.

Seems mad to think some people have made retirement choices up to now without considering when they might die

— hilaryosborne (@hilaryosborne) April 17, 2014

Thinking about life expectancy is an important part of ensuring you can plan to never run out of money in your lifetime. This is what our process of lifetime cash flow forecasting considers.

There are however some problems with this approach.

The issue with calculating life expectancy is that not all people are average !

— YvonneGoodwin (@YvonneGoodwin) April 17, 2014

As personal finance commentator Yvonne Goodwin points out above, not all people are average.

Understanding average life expectancy can be helpful, but as humans we have a tendency to beat averages on a fairly regular basis.

Live for longer than expected and we risk running out of money if we have planned to die at a specific age. Die sooner than expected and we might have wasted an opportunity to spend wealth during our finite lifetime.

@hilaryosborne no harm in telling them but expecting that to make any difference to how they manage money is wishful thinking

— Alan Higham (@pensionschamp) April 17, 2014

Even knowledge of average life expectancy is unlikely to make much of a difference to how people approach their finances, according to pensions expert Alan Higham.

Imagine for a moment you are told that, based on your individual circumstances, you are likely to die at age 81. How would you behave differently?

In our experience, people often struggle to effectively plan for longer than 5-10 years in the future. For a 50 year old, an expectations of a further 31 years on this planet could be as irrelevant as asking them which mobile phone they will be using in 20 years time.

All you lot smugly posting your runkeeper and cyclometer results….. @stevewebb1 is watching as he knows you will live longer!!

— Damian Davies (@thetimebank) April 17, 2014

There’s also the issue of individual assumptions to consider.

As Damian points out above, our individual life expectancy is variable based on several factors, including lifestyle.

Life expectancy for a smoking, heavy drinking, Glaswegian with a family history of heart disease is vastly different from a clean-living, vegan athlete living in Westminster.

Such is the disparity between life expectancy in different parts of the country, that a girl born today on the Northburn Estate in Northumberland is expected to live to 105, while boys born in Rock Ferry in Birkenhead would be lucky to live to age 67.

Perhaps this focus on life expectancy is heading towards a time when State pension is linked to a tailored forecast of your likely date of death?

Where you were born and live, your chosen lifestyle and family history of diseases might all one day contribute towards how much pension the State is prepared to pay you in the future.

For now, guidance around life expectancy could be a useful consideration in retirement planning – we suspect it will need to be combined with individual advice to produce anything meaningful.

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